DBRS Morningstar Confirms All Classes of WP Glimcher Mall Trust 2015-WPG

DBRS Limited (DBRS Morningstar) confirmed the ratings on the following classes of Commercial Mortgage Pass-Through Certificates, Series 2015-WPG issued by WP Glimcher Mall Trust 2015-WPG:

-- Class PR-1 at BBB (low) (sf)
-- Class SQ-1 at BBB (low) (sf)
-- Class PR-2 at BB (sf)
-- Class SQ-2 at BB (low) (sf)
-- Class SQ-3 at B (low) (sf)

These classes are collateralized by the subordinate debt on the two assets in this transaction, Scottsdale Quarter (the SQ classes) and Pearlridge Center (the PR classes). For this review, DBRS Morningstar changed the trends on all five classes to Stable from Negative.

In addition, DBRS Morningstar confirmed the ratings on the following pooled classes:

-- Class A at AAA (sf)
-- Class B at AA (low) (sf)
-- Class X at A (sf)
-- Class C at A (low) (sf)

DBRS Morningstar changed the trends on Classes B, X, and C to Stable from Negative. The trend on Class A remains Stable. The rating confirmations and Stable trends reflect the overall improved performance of the underlying properties as revenues rebound to issuance levels, according to the most recent financials.

This transaction is backed by portions of the senior debt and all of the subordinate debt secured by Scottsdale Quarter, a 541,386-square-foot (sf) mixed-use retail center in Scottsdale, Arizona, and Pearlridge Center, a 1.14 million-sf super-regional mall in Aiea, Hawaii, the state’s largest enclosed shopping center. Both properties are managed by Washington Prime Group (WPG).

The previous Negative trends had reflected DBRS Morningstar’s concerns with the performance challenges faced by regional malls in general as a result of the lingering effects of the Coronavirus Disease (COVID-19) pandemic, as well as concerns with the sponsor, WPG, which reported revenue declines for several years leading to its Chapter 11 bankruptcy in June 2021. In October 2021, WPG emerged from bankruptcy following significant debt reductions and a corporate restructuring, which included the majority stake in its ownership being transferred to Strategic Value Partners (Strategic). These updates, in addition to positive leasing momentum at Scottsdale Quarter and stable-to-improving performance for both underlying properties, formed the basis for the change to Stable trends.

The Pearlridge Center is an enclosed center, originally built in 1972 and located just north of Pearl Harbor. The mall is anchored by Macy’s (18.4% of the net rentable area (NRA)), lease expiration in February 2027). A vacant anchor pad was formerly occupied by Sears, which closed in April 2021. As a result of Sears’ closure, occupancy at the subject property declined to 76.1% according to the September 2022 rent roll, down from 91.5% at YE2020. Strategic has assumed the Sears lease and continues to work with WPG to evaluate opportunities for the space. Other large tenants include Bed Bath & Beyond (5.7% of NRA, lease expiration in January 2026) and Consolidated Theatres Pearlridge (4.7% of NRA, lease expiration in December 2022). DBRS Morningstar has asked for an update on the theater’s lease.

Although revenues have improved 13.3% since YE2021, net cash flow (NCF) is down because of increasing expenses. Annualized NCF for the year-to-date September 2022 period was reported to be $17.4 million (with a debt service coverage ratio (DSCR) of 2.16 times (x)), down from $22.7 million (2.81x) at YE2021 and $21.7 million (2.68x) at issuance. DBRS Morningstar believes the property’s increased operating expenses may be partially attributable to WPG’s bankruptcy filing and emergence in 2021. The sponsor previously requested but was denied coronavirus-related relief. The loan is interest only (IO) and has never been delinquent.

The Scottsdale Quarter is a Class A, mixed-use, open-air lifestyle center with office space, 17 miles northeast of Phoenix in the affluent Kierland neighborhood of north Scottsdale. Major tenants include Landmark Theatres, Restoration Hardware, and Forever 21. Occupancy declined to 74.4% as of September 2021 following the departure of several tenants. However, since YE2021, approximately nine retail tenants (14.1% of the NRA) commenced leases at the property at rental rates that are in line or above the average rental rate of the earlier-leased tenants at the property and in line with market rates as reported by Reis. Landmark Theatres backfilled the anchor space that was formerly occupied by IPIC Theaters (8.2% of NRA) in 2021. As such, occupancy increased to 88.0% according to the September 2022 rent roll, and NCF increased to $17.9 million (reflecting a DSCR of 3.03x) as of the trailing 12 months ended September 2022, from the YE2020 figure of $12.2 million (reflecting a DSCR of 2.04x). The NCF at issuance was $13.6 million.

DBRS Morningstar’s analysis included several stressed value scenarios to determine the durability of the ratings, indicating that the capital structure provides sufficient support relative to the current ratings.

The loans are not cross-collateralized or cross-defaulted. Of the $165.0 million whole loan secured by Scottsdale Quarter, $95.0 million is senior A note debt, with a total of $13.0 million in subordinate B note debt and $57.0 million in subordinate C note debt. Of the senior A note debt for Scottsdale Quarter, $25.0 million in pari passu proceeds were contributed to this trust, with the remaining A note debt split pari passu across two conduit transactions in JPMBB Commercial Mortgage Securities Trust 2015-C30 and COMM 2015-CCRE25 Mortgage Trust, the latter of which is not rated by DBRS Morningstar. The $25.0 million in pari passu A note debt and the $13.0 million B note back the pooled classes, and the $57.0 million in C note debt backs the rake SQ classes in the subject transaction. Of the senior A note debt for Pearlridge Center, $10.4 million in pari passu proceeds were contributed to this trust, with the remaining A note debt split pari passu across the same two conduit transactions mentioned above. The $10.4 million in pari passu A note debt and the $48.6 million B note back the pooled classes, and the $46.0 million in C note debt backs the rake PR classes in the subject transaction.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no environmental, social, and governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/396929 (May 17, 2022).

Class X is an IO certificate that references a single rated tranche or multiple rated tranches. The IO rating mirrors the lowest-rated applicable reference obligation tranche adjusted upward by one notch if senior in the waterfall.

All ratings are subject to surveillance, which could result in ratings being upgraded, downgraded, placed under review, confirmed, or discontinued by DBRS Morningstar.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is North American CMBS Surveillance Methodology (October 3, 2022), which can be found on dbrsmorningstar.com under Methodologies & Criteria. For a list of the structured-finance-related methodologies that may be used during the rating process, please see the DBRS Morningstar Global Structured Finance Related Methodologies document, which can be found on dbrsmorningstar.com in the Commentary tab under Regulatory Affairs. Please note that not every related methodology listed under a principal structured finance asset class methodology may be used to rate or monitor an individual structured finance or debt obligation.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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